Is Threshold on the Verge of Success?

On almost any given day, the stock market's best and worst performers will be crowded with pharma and biotech stocks.

On almost every given day, the list of the stock market's best and worst performers will be mostly populated with pharmaceutical and biotech stocks, so the sector's reputation for volatile share prices is well deserved. In keeping with this trend, shares of Threshold Pharmaceuticals(NASDAQ:THLD) were the second-best performer on the market yesterday, up 28% as a result of positive phase 2 clinical trial results for its lead drug, glufosfamide.

Glufosfamide is in multiple clinical trials as a treatment for late-stage pancreatic cancer. It's currently being tested in a pivotal 300-person phase 3 trial with a Special Protocol Assessment from the FDA. Results from this trial are expected some time in February or March of next year, but investors were given a hint of glufosfamide's potential with an announcement of interim results from a phase 2 trial with the drug yesterday.

In combination with Eli Lilly's (NYSE:LLY) blockbuster cancer treatment, Gemzar, patients taking Threshold's glufosfamide had a 21% partial response (reduction in tumor size), and 36% of patients had stable disease. As a comparison, in clinical trials with OSI Pharmaceuticals' (NASDAQ:OSIP) Tarceva or Roche's Xeloda, Gemzar was only able to achieve 8.6% and 14% response rates, respectively.

Before investors get overly excited that this small 29-person phase 2 trial will be a positive predictor of the outcome of glufosfamide's phase 3 trial, they need to realize that there are important distinctions between the phase 2 and 3 trials of the drug. The phase 3 trial is testing the drug in a tougher patient population made up of people who have already failed other treatments for their cancer, it is being used as a monotherapy, and the primary endpoint of the trial is overall survival and not objective tumor response. Additionally, since there was no comparator arm in this phase 2 study, it's impossible to tell for sure if the tumor response seen in the trial was a result of glufosfamide or Gemzar.

Because of all these varying parameters, it's obviously difficult to try and predict the success of phase 3 clinical trials based on nonrandomized phase 2 results, especially with cancer treatments.

This has been a volatile year for Threshold. Shares dropped 75% in May after the company halted clinical development of its lead drug, but propitious investors who got in after that, at the lows for the year, are sitting on more than a double for their time. One thing is for sure: Threshold will be one of the biggest share price gainers or losers when its phase 3 glufosfamide results come out next year.